What is blockchain and why does HR need to know about it?


You may have heard about blockchain in relation to finance or crypto-currency and payment system, Bitcoin. And if you’re anything like me, thought, “I should probably find out what the hell that is.” Well, here you go: A brief explanation of what blockchain is and how it might affect the HR profession.

According to a PwC blog, “Blockchain is, quite simply, a digital, decentralised ledger that keeps a record of all transactions that take place across a peer-to-peer network.” Huh. Simple, right?

Sometimes the best way to understand something is to think about using it. So imagine you’re out to dinner with a friend and it’s time to split the bill. You don’t have the right amount of cash on hand so you have a few options. You can tell your friend you’ll pay them later, relying on trust. Or, if your friend had a very low opinion of your credit rating, they could make you sign a contract so they can sue you if you don’t pony up.

Far more likely is you’ll pay them online, probably through your bank’s mobile app. While this is convenient, it is also complicated in a way few of us even think about. You’re not simply paying your friend, you are sending an electronic message to the bank telling them to give money to another bank which will then make the money available to your friend. The proof that this transaction takes place is evident in files at each bank, and in any documentation they send to you.

It’s a system that mostly works but it still relies on trust (that the banks have everything in order) and legalities (because you can challenge them if they don’t). What you have, in effect, are two heavily involved middlemen in a transaction that technically doesn’t require even one.

Blockchain is a digital system that eliminates these middlemen while still giving you a level of security and trust. What’s more, unlike banks, this system doesn’t expect to profit from your transaction.

But can it be trusted? We put faith in financial institutions because they’re well-established, subject to laws, and monitored by regulators. In other words, a series of humans are telling you to trust them. The GFC of 2008 (which inspired the creation of Bitcoin, the first application of blockchain) is an example of what happens when all that breaks down.

You trust blockchain, in theory, because it eliminates the human element. It’s a completely impersonal, immutable ledger (a record of transactions) that is not held in any one place. “Decentralised” means that every part of the system across the network has a version of the ledger, and every verified new transaction gets recorded on every node in the network.

Plus, all previous transactions in a ledger are recorded in a string of unbreakable ‘blocks’ (there it is), with each containing the details of why it’s there and who was responsible. And you can’t delete or change a transaction in an attempt at fraud because it would make all subsequent transactions erroneous, and the version of the ledger you’re manipulating would no longer be validated by the rest of the network.

So, going back to your friend who doesn’t trust you (by the way, you should really think about whether this friendship is worth the effort), how would blockchain work? Well, you would pay them directly, with the network verifying that you have the correct passcodes, and updating your individual accounts accordingly. Finally, all of this is encrypted so the only people aware of who is getting who’s money are the pair of you.

How could this possibly relate to HR?

Because Bitcoin is the first example of blockchain technology, and the first innovations to come out of the technology were all to do with finance, it is very closely associated with the industry. Indeed, there are predictions that blockchain will do to the financial system what the internet did to media.

But any single blockchain is a ledger, and ledgers can hold data besides numbers. There are numerous startups trying to figure out how technology can be used – but two applications on the horizon both relate to recruiting.

Firstly, is a resume authentication process. At the moment, as many HR professionals would attest, it is simple to lie on a resume. Verifying that a recruit has attended the university they say they have, did the course they say they did, and possess the required certification, requires you to contact all the relevant institutions. In this system, fraud happens all the time, especially with international recruits (where language barriers for documentation can require a level of trust).

Last year Recruit Technologies and ascribe (a blockchain service for verifying the copyright of digital work) announced an alliance designed to create a blockchain system to make resume authentication automated. So instead of relying on people, you could trust someone’s resume blockchain to convey the truth. And it wouldn’t stop at storing digitally-verified degrees and certificates.

As Andrew Spence at HRN blog excitedly explains:

“Imagine having all your employment related details associated with your electronic signature in one block – security access, insurance, payroll, expenses, work performance, employment history, psychometrics etc. The employment contracting process would effectively be redundant. You could work almost immediately, with quick payment.”

ChronoBank, an Australian startup, is planning on bringing that idea of contract-free work and reliable payment to the freelancer world sooner rather than later. Their innovation is to create a cryptocurrency the value of which is pegged to national-wage averages, which would avoid the inflation uncertainty that Bitcoin experiences. Their next step is to create a de-centralised marketplace where companies can be certain the freelancers they’ve hired are capable (a reputation value tied to their blockchain of work would prove it), and that removes the need for the services of recruiting firms and banks.

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Kate Norton
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Kate Norton

This is really interesting. You have explained this very well. As with any system, the input of data is key. With Blockchain systems, is there ever an originating issue with input data, and if there is, how could you ever stop ‘reputational’ misinformation from gathering steam? It’s eerily like a barcoded Big Brother human future. I am assuming that this could also see connection to Police checks, etc. If data is figure based, or validated documentation and not interpretational, then this could be very good for HR, Company process and due diligence. What is of concern is other information that… Read more »

Trent Dunn
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Trent Dunn

Thanks Girard, great article and subsequent comments from Kate and yourself. Very well articulated indeed.

Nilan Vagh
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Nilan Vagh

Thanks Girard, very informative article indeed. Being in HR in the financial industry, I was intrigued with the idea of Blockchain being used for HR processes. It would be a vast improvement from what we have know and it would cut out unnecessary man-hours for verification purposes

Ernest Ogunleye
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Ernest Ogunleye

Hello Girard,
To quote Albert Einstein, “If you can’t explain it simply, you don’t understand it well enough.”
Thank you for providing an interesting, straightforward and “reader-friendly” article on Bitcoin/Blockchain technology. It’s clear that you know your subject.

Mo. Fadili
Guest
Mo. Fadili

Great article, and comment questionning the quality of data input. One can imagine a market of data input where contractors for example would pay employees of customers to enter good references. This would be organized at every level of the customer organization up to the upper management. Such systems already exist, blockchain would give them credibility.
How to prevent this from happening?

More on HRM

What is blockchain and why does HR need to know about it?


You may have heard about blockchain in relation to finance or crypto-currency and payment system, Bitcoin. And if you’re anything like me, thought, “I should probably find out what the hell that is.” Well, here you go: A brief explanation of what blockchain is and how it might affect the HR profession.

According to a PwC blog, “Blockchain is, quite simply, a digital, decentralised ledger that keeps a record of all transactions that take place across a peer-to-peer network.” Huh. Simple, right?

Sometimes the best way to understand something is to think about using it. So imagine you’re out to dinner with a friend and it’s time to split the bill. You don’t have the right amount of cash on hand so you have a few options. You can tell your friend you’ll pay them later, relying on trust. Or, if your friend had a very low opinion of your credit rating, they could make you sign a contract so they can sue you if you don’t pony up.

Far more likely is you’ll pay them online, probably through your bank’s mobile app. While this is convenient, it is also complicated in a way few of us even think about. You’re not simply paying your friend, you are sending an electronic message to the bank telling them to give money to another bank which will then make the money available to your friend. The proof that this transaction takes place is evident in files at each bank, and in any documentation they send to you.

It’s a system that mostly works but it still relies on trust (that the banks have everything in order) and legalities (because you can challenge them if they don’t). What you have, in effect, are two heavily involved middlemen in a transaction that technically doesn’t require even one.

Blockchain is a digital system that eliminates these middlemen while still giving you a level of security and trust. What’s more, unlike banks, this system doesn’t expect to profit from your transaction.

But can it be trusted? We put faith in financial institutions because they’re well-established, subject to laws, and monitored by regulators. In other words, a series of humans are telling you to trust them. The GFC of 2008 (which inspired the creation of Bitcoin, the first application of blockchain) is an example of what happens when all that breaks down.

You trust blockchain, in theory, because it eliminates the human element. It’s a completely impersonal, immutable ledger (a record of transactions) that is not held in any one place. “Decentralised” means that every part of the system across the network has a version of the ledger, and every verified new transaction gets recorded on every node in the network.

Plus, all previous transactions in a ledger are recorded in a string of unbreakable ‘blocks’ (there it is), with each containing the details of why it’s there and who was responsible. And you can’t delete or change a transaction in an attempt at fraud because it would make all subsequent transactions erroneous, and the version of the ledger you’re manipulating would no longer be validated by the rest of the network.

So, going back to your friend who doesn’t trust you (by the way, you should really think about whether this friendship is worth the effort), how would blockchain work? Well, you would pay them directly, with the network verifying that you have the correct passcodes, and updating your individual accounts accordingly. Finally, all of this is encrypted so the only people aware of who is getting who’s money are the pair of you.

How could this possibly relate to HR?

Because Bitcoin is the first example of blockchain technology, and the first innovations to come out of the technology were all to do with finance, it is very closely associated with the industry. Indeed, there are predictions that blockchain will do to the financial system what the internet did to media.

But any single blockchain is a ledger, and ledgers can hold data besides numbers. There are numerous startups trying to figure out how technology can be used – but two applications on the horizon both relate to recruiting.

Firstly, is a resume authentication process. At the moment, as many HR professionals would attest, it is simple to lie on a resume. Verifying that a recruit has attended the university they say they have, did the course they say they did, and possess the required certification, requires you to contact all the relevant institutions. In this system, fraud happens all the time, especially with international recruits (where language barriers for documentation can require a level of trust).

Last year Recruit Technologies and ascribe (a blockchain service for verifying the copyright of digital work) announced an alliance designed to create a blockchain system to make resume authentication automated. So instead of relying on people, you could trust someone’s resume blockchain to convey the truth. And it wouldn’t stop at storing digitally-verified degrees and certificates.

As Andrew Spence at HRN blog excitedly explains:

“Imagine having all your employment related details associated with your electronic signature in one block – security access, insurance, payroll, expenses, work performance, employment history, psychometrics etc. The employment contracting process would effectively be redundant. You could work almost immediately, with quick payment.”

ChronoBank, an Australian startup, is planning on bringing that idea of contract-free work and reliable payment to the freelancer world sooner rather than later. Their innovation is to create a cryptocurrency the value of which is pegged to national-wage averages, which would avoid the inflation uncertainty that Bitcoin experiences. Their next step is to create a de-centralised marketplace where companies can be certain the freelancers they’ve hired are capable (a reputation value tied to their blockchain of work would prove it), and that removes the need for the services of recruiting firms and banks.

7
Leave a reply

avatar
100000
  Subscribe to receive comments  
Notify me of
Kate Norton
Guest
Kate Norton

This is really interesting. You have explained this very well. As with any system, the input of data is key. With Blockchain systems, is there ever an originating issue with input data, and if there is, how could you ever stop ‘reputational’ misinformation from gathering steam? It’s eerily like a barcoded Big Brother human future. I am assuming that this could also see connection to Police checks, etc. If data is figure based, or validated documentation and not interpretational, then this could be very good for HR, Company process and due diligence. What is of concern is other information that… Read more »

Trent Dunn
Guest
Trent Dunn

Thanks Girard, great article and subsequent comments from Kate and yourself. Very well articulated indeed.

Nilan Vagh
Guest
Nilan Vagh

Thanks Girard, very informative article indeed. Being in HR in the financial industry, I was intrigued with the idea of Blockchain being used for HR processes. It would be a vast improvement from what we have know and it would cut out unnecessary man-hours for verification purposes

Ernest Ogunleye
Guest
Ernest Ogunleye

Hello Girard,
To quote Albert Einstein, “If you can’t explain it simply, you don’t understand it well enough.”
Thank you for providing an interesting, straightforward and “reader-friendly” article on Bitcoin/Blockchain technology. It’s clear that you know your subject.

Mo. Fadili
Guest
Mo. Fadili

Great article, and comment questionning the quality of data input. One can imagine a market of data input where contractors for example would pay employees of customers to enter good references. This would be organized at every level of the customer organization up to the upper management. Such systems already exist, blockchain would give them credibility.
How to prevent this from happening?

More on HRM